Fall 2006

1.040/1.401/ESD.018 (Project Management)

Globalization of E&C Industry

Fred Moavenzadeh

Spring 2007

Fall 2006

The Construction Industry is currently in a transition state.

Forces from both the demand as well as the supply side have made it

necessary to re-examine the strategies for growth and competitiveness.

Spring 2007

Fall 2006

Engineering and Construction Industry is Concerned with two sets of issues:

I. How demand for its output is generated and affected by modern societies.

II. How supply system is shaped to cope with changing demand.

Spring 2007

Fall 2006

Source: U.S. Department of Commerce Annual Value of ConstructionPut-in-place in current dollars, 2004 Data is preliminary

TOTAL CONSTRUCTION

Spring 2007

1200

1100

1000

900

800

700

6001997 1998 1999 2000 2001 2002 2003 2004 2005

$ B

il.

Figure by MIT OCW.

Fall 2006

Private Constructionin 2004Total $999.76 Billion

Source: Dept. of Commerce. Construction Put-In-Place. Details May NotAdd Total Since All Types of Construction are not Shown Separately.

Spring 2007

14.7

25.8213.02

6.6

8.08

8.57

12.88

25.9561.2132.18

11.74

544.32

ManufacturingPower

Communication

TransportationAmu sement/Rec

Religious

Educational

Health CareCommercial

Office

Lodging

Residential

Figure by MIT OCW.

Fall 2006

A, E&C Firms Differentiation:

Four Thrust Areas

1. Technology of AssemblyDesignConstruct

2. Management of Assembly on SiteProject Management

3. Management of Organizations Specializing in Assembly

4. Interaction of Assembled Systems with Socio-Economic Development and Environmental Protection

Spring 2007

Fall 2006

Product DesignProduct DesignProcess DesignProcess Design

Management DesignManagement Design

Spring 2007

Fall 2006

OwnersOwners

Product DesignProduct Design Process DesignProcess Design

Management DesignManagement Design

Struct.Arch.

Geotech.Elect.

Mech.

Etc.

Sub. 1Sub. 2

Sub. 3

Supplier 1

Supplier 2Supplier 3

Finance

Bonding Legal BiddingContracting

Control

Spring 2007

Fall 2006

Major Developments of the 1990’s

Globalization and Market Economy

World Trade Organization

Financial Markets and Privatization

Information Technology and Telecommunications

World Wide Web and E-Commerce

Environment and Sustainability

Science and Technology as an Instrument ofEconomic Competitiveness

Spring 2007

Fall 2006

Consequences:

Increased demand for movement of goods and information

Increased demand for Human Resource Development

Need for Increased Transparency in Government’s Regulatory Systems

Importance of a Robust Science and Technology Infrastructure

Spring 2007

Fall 2006

Change

On Demand Side

ClientMarkets

On Supply Side

TechnologyOrganization

Spring 2007

Fall 2006

I. TRADE

II. ECONOMIC BLOCS

III. FINANCE

IV. ENVIRONMENT

V. TYPE OF WORK

Changing Nature of Demand

Spring 2007

Fall 2006

I. TRADE- International trade in services.- International trade in construction services and products.- International trade in construction labor.

TREND- Is toward further relaxation of barriers to entry into large

construction markets.

IMPLICATIONS- Increasing need to remain competitive on global basis.

Changing Nature of Demand

Spring 2007

Fall 2006

II. Economic Blocs:1. North American (U.S., Canada, Mexico)2. European Economic Community3. Far East Centered in Japan4. Mercusor

Trends:1. Potential Future Bloc:

Latin AmericaMiddle EastIndian Sub Continent

2. Realignment of Firms Within Each Bloc via:Merger and AcquisitionJoint venturingStrategic Alliances

3. Need to Expand GloballyImplications:Further Erosion of Control over Domestic Market

Changing Nature of Demand

Spring 2007

Fall 2006

III. Finance• Financial market is fully global

• New financial packaging and instruments• Increased risk due to fluctuation in exchange rate

Trends• Greater involvement by construction in financial packaging

• Greater equity participation

• Greater involvement in operation and management

Implications• A close relationship between financial firms and construction firms

• Financial engineering and financial packaging services

Changing Nature of Demand

Spring 2007

Fall 2006

IV. Environment• Prevention of further damage to environment• Correction of damaged environment• Infrastructure

Trends• New specialization• Increased construction opportunity• Substantial sensitivity to sociopolitical concerns

Implications• Niche market strategy• New technological development• New risk mitigation and allocation

Changing Nature of Demand

Spring 2007

Fall 2006

V. Type of Work

A. Energy & Environment

B. Infrastructure

C. Buildings & Housing

D. High-Technology and Industrial Construction

Changing Nature of Demand

Spring 2007

Fall 2006

Changing Nature of Supply

I. Globalization

II. Manpower

III. Technological Changes

Spring 2007

Fall 2006

I. Globalization• Geographic

• Internal

• External

Trends• Organizational Readjustment

• Development of Brand Name Identity

• Niche Strategy

• Out Sourcing

Implications• Reorganization, Global Perspective

Changing Nature of Supply

Spring 2007

Fall 2006

II. Manpower• Demographic Characteristics• Mature Labor Force• Less Tolerant of Physical and Manual Chores• Better Educated• More Mobility

Trends• Teamwork, Labor-Management Cooperation• Commitment to Skill Development

Implication• More Reliance on Technology

Changing Nature of Supply

Spring 2007

Fall 2006

III. Technological Changes• Advanced Materials

• Automation and Robotics

• Information Technology

- Sensor Technology, Communication TechnologyTrends

• Transfer from On-Site to Off-Site Production

• Flexible Manufacturing

• Computer Control Production

• Smart Sensors, Smart Agents, Smart BuildingsImplications

• Capital Intensity

• Proprietary Technology

Changing Nature of Supply

Spring 2007

Fall 2006

• Vertical Integration

• Horizontal Networking

• Franchising

Management of Organization

Spring 2007

Fall 2006

• Niche Strategy

• Brand Name Identification

• Market Aggregation

• Market Making

Technological Stratification

Vertical Integration

Spring 2007

Fall 2006

Market Aggregation Bargaining with

• Suppliers• Clients

Horizontal Networking

Spring 2007

Fall 2006

• Marketing

• Technological Know-how

• Suppliers

• Flattened Organizations

Franchising

Spring 2007

Fall 2006

Large Firms• Global

• Vertical Integration

• Proprietary Knowledge

Medium Firms• Regional Independence

• Networking

• Proprietary Knowledge of Markets and Suppliers

Small Firms

• Franchising

Spring 2007

Fall 2006

Project

Computer Based

• Control: Time and Cost• Inventory• Knowledge Based Systems• Interactive System• Intelligent Databases

Spring 2007

Fall 2006

Firms

• Decision Support Systems• Intelligent Database• Strategic Management Information Systems• Embodiment of Knowledge in

Institution and Organization• Proprietary Knowledge• R&D

Spring 2007

Fall 2006

WHEN THE INDUSTRY’S PRODUCTIVITY INCREASED BY ALMOST AN ORDER OF MAGNITUDE DUE TO THE

CONFLUENCE OF TECHNOLOGY AND MAKRET

Highway Construction Market

Technology Mechanization

Historically a Similar Situation Existed in the 1920’s

Spring 2007

Fall 2006

Surfacing

Spring 2007

100%

100%

100%

90%

80%

70%

60%

50%

40%

30%

20%

20%15%

21%10%5% 3% 6%0%

1920 1950 1970 1980

Labor

Capital

Figure by MIT OCW.

Fall 2006

Market Stability Infrastructure

Similar Opportunities Exist Today

Technology

• Information & Communication• Robotics• Engineered Materials

Spring 2007